Donor Retention Math Made Simple

Jay Love is a guest contributor for Nonprofit Hub. He’s currently the CEO and Co-Founder of Bloomerang and the Senior Vice President of Avectra—both organizations serving the nonprofit sector with cutting edge technology tools for fundraising and communications.
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My research into the math behind donor retention kept leading me to a single source. The person was Dr. Adrian Sargeant and his revolutionary research in Donor Retention and Donor Loyalty.

Huge Improvements Based on Best Practices

One of the key tenets of Dr. Sargeant’s research is the astounding difference improved donor retention can make for any nonprofit organization. Adrian’s most often quoted phrase is:

“Improving Donor Retention by Just 10% Can Double the Lifetime Value of your Donor Database!”

This statement is where the math comes into play and is often asked about in our seminars, webinars and demos. So let’s play it out below for all to see…

For our illustration let’s use the most recent FEP survey results. The FEP report stats are by far the most accurate since they are based upon actual donor data in thousands of real databases. Therefore, we will use a retention rate of 41% and play out the difference of just moving that rate to 51% over the ensuing years. Just to make the math easy let’s use a database of 5,000 donors with an average gift of $200.

Initial 5,000 Donor Chart of the Impact of a 10% Retention Change

The chart below is just the beginning because it is illustrating what will happen with only those original 5,000 donors. After we view what the exact impact is with those 5,000 donors, we will explore the numerous other factors which can lead to doubling the Lifetime Value of your overall database.

Notice what is happening with the sizable revenue generation difference based on those original donors. One interesting statistic is that the 10% improvement yields original donors sticking around four full years longer! Four years is more than enough time for securing a few large scale major gifts, or even better yet, time to arrange a few legacy gifts.

The Additional Multiplier Factors in Donor Retention Math

The chart above provides a superb starting point to explain how the additional hundreds of thousands of revenue dollars will be added to the green portion of the chart at a faster rate than the blue section.

First, let’s assume that every year one out of three remaining donors is responsible for bringing forth one brand new donor either by referral or direct solicitation. This is apart from what the organization succeeds at creating on its own, in the way of new donors. Since there are more remaining donors on the green side of the chart, the one in three new donors added pool is larger.

This new donor pool on the green side now has the multiplying benefit of the 10% higher retention rate, so they remain and compound in larger numbers each year.

Exponential Growth in Donor Retention

Have you ever looked into a mirror that reflected your image off another mirror? At precisely the correct angle of the mirrors, you can see your image multiplied hundreds of times. This happens in donor retention too. The new donors recruited by existing donors are not just from the first group of retained donors, but from every group of additional new donors added annually. This produces higher revenue growth on the green side over and over. The net effect is exponential growth.

Since we know donors recruited by other existing donors tend to retain higher than the organization’s average retention rate, the above revenue generation effect is multiplied even faster!

The “Other” Factors in Doubling the Lifetime Value of Your Database

The items listed below are difficult to place precise mathematical formulas and values upon. Suffice to say they have a wonderful positive effect that varies from organization to organization. Here they are in no particular order:

1. When donor retention rates are higher less marketing dollars and effort are spent in acquisition, and greater focus can be placed on upgrading existing donors.

2. More marketing dollars and efforts can be spent on securing legacy gifts such as bequests where the revenue impact can be sizable.

3. More retained dollars almost always means more volunteers which can create many benefits.

4. The longer donors are retained the more chance they will be involved in one or more capital campaigns.

5. The longer a donor is retained the higher the chance for above average gift upgrades.

6. The longer time a person has been a donor the higher the chance to recapture them if they lapse one year.

7. The longer a person has been a donor the better the chance to recapture them in later years .

8. Your best retained donors tend to recruit new donors at a faster pace.

9. Retained donors who move up the giving ladder always open more doors to other higher end donors who they associate with.

10 Success in donor retention spurs success in other areas.

Conclusion and Next Steps

Perhaps there is a spreadsheet/statistical expert who could expand the chart above to reflect all of these other factors as well as geometric multipliers. If so, please send it to me and I will add it to a future blog post. Until then, we can easily discern that Adrian’s original statement of a 10% increase in donor retention resulting in a doubling of the lifetime value of your database is true and quite powerful in the fundraising world.

Several of my future blog posts will outline a multitude of next steps, which can create such a 10% improvement in retention of your donors or larger. Please keep in mind a donor software/database like Bloomerang, which reinforces best practices in donor retention, is a great place to start!

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http://www.ecmow.org George Roberts

Spot on Jay! For some reason, many development people consider landing a new donor more exciting or noteworthy than retaining an existing donor. Your data and analysis clearly make the case for the many benefits of retention.